Wacky Unstable Markets Worrisome Sign Of The Times

Markets Becoming Wacky And Unstable 

A word of caution to those who don't know what to make of the wacky markets we have seen since Trump has assumed the position of President-elect. Do not be surprised if the markets remain unstable for some time. On election night as results came in markets in America and across the world plunged only to reverse by morning and then surged higher. This resulted in new all-time market highs that left many traders stunned. We are forced to wonder if the move was because of traders caught sideways ran for cover or some other force put in place prior to results being reported were unleashed against those positioned for falling prices.

Simply put too many variables are in play and now busy interacting to allow for much in the way of sound decision making. More than a few wild cards are being played and the impact of things like China adding liquidity to its banking system is very important and has consequences. This money is rapidly flowing outside its borders distorting markets across the world. Predictions are often wrong and this influx of endless reactions to crazy policy swings make them no more than guessing. 

It is also important to remember that not all traders are enjoying a post-election bout of glee. Many shorts and bond holders have been hammered. This week has started with the dollar continuing its surge and  pushing the DXY above 100 for the first time since December of 2015. We are seeing global bond yields soar and emerging market currencies tumbling. Where the action is different from last week is that reality is starting to set in over growing concerns that a spike in yields will cap the upside of any rally in equities.

Do not be surprised if  much of the market action we are witnessing proves to be unsustainable. One example is the action in copper where it blew through resistance and sent bears running to cover even though fundamentals have not changed. While speculation of a coming boom in building moves prices in fact nothing has really changed and we have a long way to go before promises that Trump made during the election can take place. The power of the President is not unlimited and is in many ways dependent upon a larger consensus that results in action.

The Trump victory has added a great deal of material to the debate of where this economy is headed, however, much of it is inconclusive and will have to play out over time. To those of us who have become clinical and question the underpinnings of this economy it may bring some relief but it appears an uphill battle to set right all the ills that confront global growth going forward. Cutting taxes while increasing spending on infrastructure and  building up the military does not guarantee success.   Unfortunately, such spending will quickly add to our wall of debt. Trump has pledged to rebuild the military and America's infrastructure, a major problem of a war based economy is the issue of sustainability.

As a taxpayer, I would be more reassured if there was more talk about cutting waste and how we are going to pay for the programs being proposed.  It is expensive to maintain an army and war is a destructive force. Long gone are the days of conquering your enemy then raping and plundering your way to glory and riches. Glaring examples of just how expensive war can be remain fresh in our minds from our recent and continuing excursion into the Middle-East. Infrastructure also has the potential to become a boondoggle with huge cost overruns and is just a waste of money if allowed to be driven by political motivations rather than necessity.

Mosul Is Being Reduced To Rubble

Fact Is Mosul Will Be Reduced To Rubble

A matter that merits attention has become merely a footnote lost in the noise of daily news, these are the events taking place as Iraqi troops and a coalition of anti-ISIS forces try to retake Mosul. The timing is a bit suspect and it could be viewed as a convenient coincidence that forces allied with America descended upon Mosul creating a positive message just as Americans went to the polls, this is coupled with news that a similar attack is starting in Syria against Raqqa the headquarters and capital of ISIS. If someone was suspicious they might think all this beginning in the days leading up to the American Presidential election and being spun in the media as a forthcoming victory was orchestrated to assure voters American foreign policy has not been a dismal failure.  

Even though they are in different countries both Mosul and Aleppo stand in the path of the destruction and are being wrecked by the forces of war. Aleppo is of course further down this path as we have seen in photos that have become far too common, these photos depict the total devastation and death modern warfare brings upon those caught in its way.  Mosul and the surrounding area  in northern Iraq had in the past housed about two and a half million people. Since being occupied by the Islamic State of Iraq and the Levant in June of 2014 many people have fled. Knowing that to stay was to risk your life and the lives of those with you the population today has declined to around five hundred thousand. Alsumaria News reports Islamic State militants have even deployed armed children in Mosul’s Old City as means to bolster the impression they are still in control as forces seeking to liberate the city advance.

Adding to the woes of civilians that have remained are reports from U.S. based Human Rights Watch that Iraqi Kurdish fighters battling the Islamic State have unlawfully destroyed Arab homes in scores of towns and villages in what may amount to a war crime. The good news is the operation to liberate the city of Mosul and eliminate the last bastion of ISIS in Iraq has been moving faster than many people anticipated according to Prime Minister Haider al-Abadi. Still, problems continue to surface, one of the newest is the operation is now being slowed by a wave of car bombs sent by the Islamic State group. Iraqi special forces Maj. Gen. Sami al-Aridi said Sunday that "there are so many civilian cars and any one of them could be a bomb." As Iraqi forces try to advance further into Mosul these suicide car bombs have taken a toll.

Mass Executions By ISIS Are Well Documented

The bad news is that before this is over Mosul most likely will be reduced to rubble if what we have seen happen to other cities in the area becomes its fate. Within its borders, it would not be difficult to imagine 100,000 or more of the innocent people trapped within the city killed as troops seeking to eradicate some four to six thousand ISIS fighters go about their task. Death often occurs in a war zone rather indiscriminately and is dealt out to both civilians and combatants. In this case, civilians will be used as human shields, this will increase the toll and carnage.  

As for the lucky hundreds of civilians who fled fighting near Islamic State-controlled Mosul last week they  are stranded outside the city without basic humanitarian assistance. The situation has become so desperate it is said that army officers have begun distributing rations meant for their soldiers and buying extra supplies with money out of their own pockets. We have seen this all before, when the smoke clears a campaign will begin to raise massive amounts of money to rebuild and set things right but until then it is suffering and death and nothing we do will change this reality of war. The blood and treasure wasted and spent are in many ways a reflection and the legacy of intervening where you don't belong. When this campaign is over victory will be declared but what exactly will we be celebrating?

Post Election News Shifts To Negative Focus

Trump's Honeymoon May Be Short-lived

It did not take long for the post-election media coverage to shift focus towards a negative bias. The media has now turned way too much of its focus on protest and plans to destabilize democracy. Post-election news is filling the airwaves in a way that appears almost geared to intentionally stir the pot and emotionally agitate Americans. While the election of Donald J. Trump was quickly declared an earth-shattering event it is not a mandate, our polarized nation remains divided. During the past year more than 70 million citizens, 59 million for Donald Trump and 13 million for Bernie Sanders have voted for dramatic change but firing the ruling elites does not guarantee the result we seek or constitute a consensus on the direction we should take.

Members of the press are already complaining that Trump isn't adequately informing the media about his decisions as president-elect claiming it is a violation of practices meant to ensure access and transparency.  The relationship between Trump and the news media is as acrimonious as ever following his victory in Tuesday’s presidential election. The Republican nominee frequently blasted the news media as “dishonest” during his rallies, and crowds would chant slogans such as “CNN sucks” in reaction to what they considered bias coverage of events.  Trump did not allow reporters to travel with him to Washington on Thursday for meetings with President Obama and leaders in Congress, it was the White House that made arrangements to have a pool of journalists cover the president-elect’s meeting with President Obama in the Oval Office.

Will Trump's Victory Be Accepted?

Articles have surfaced about how Trump must be on the outlook for Republican neocons that will try to worm their way into his administration while also dealing with the attempt by the Clinton and international hedge fund tycoon George Soros to disrupt his presidency with a Purple Revolution. Recently when Hillary and her husband, former President Bill Clinton, entered the ballroom of the New Yorker hotel in midtown Manhattan both were adorned in purple attire. A Clinton spokespeople claimed it was to represent the coming together of Democratic-Blue America and Republican-Red America into a united purple blend. Some people consider this statement a complete ruse and see the Purple Revolution an effort to make the Trump administration a short one through street protests and political disruption.

Mark my words the only thing we are guaranteed is that it will be interesting how events unfold and that since old habits die hard the media will continue to disparage Trump with jabs and barbs. The reality is little has changed and almost all the people who created our problems remain entrenched in the system. Clearly, this will all confirm just how difficult it is to drain a swamp when those who oppose you are busy stealing your pump, this is the job Trump is faced with as he turns to governing a divided country. Americans tend to overestimate the power of the Presidency and oversimplify the complexity of bringing about real change in a legal way. Washington is a snake pit and Trump would be wise not to discount the roadblocks being cast before him.

In some ways, we should be reassured by Trump's lack of interest in a victory lap and his seriousness towards the task before him. Way back during the primaries I stated, "Having a bit of money in his own right Trump has alleged he need not steal or prostitute himself out to special interest. In all honesty, if Trump is elected he has more to lose in prestige if he performs poorly than anyone else currently running, I only wish all politicians were so motivated." Now that the improbable has come to pass President Elect Donald Trump has a big job ahead of him. With an acceptance speech that recognized the need to bring America together, he started off on the right foot but this is only the first step on a long and hard journey that is fraught with peril.

During the election, the media repeatedly painted trump supporters as less educated and unenlightened increasing the odds few people would aspire to join the movement. Ironically, enough of these deplorable souls chose to vote for an end to pointless failed wars and interventions abroad as well as ending our bubble-based economic policy at home. They revolted against the Wall Street and the bi-coastal elites who through their political connections endowed themselves with vast financial windfalls while the 90% of us in Flyover America were left behind. The many households that struggle with stagnant wages, vanishing jobs, soaring health costs, shrinking living standards and diminishing hope for the future said enough is enough.

While it cannot be claimed as a mandate the voters have spoken in no uncertain terms and declared that they are fed-up with the arrogance of Washington politicians. The "rigged” system insiders have developed that touts one set of rules for establishment insiders and another for everyone else was on full display in the constant drips of Wikileaks that included Clinton Foundation pay-to-play schemes, DNC insider communication, Podesta e-mails, and more.  During the eight years, Obama has been in office, America doubled the National Debt to 20 trillion dollars. History will likely show it produced a false illusion of prosperity but little more. The issue directly in our path is whether Trump will be allowed an opportunity to govern or his efforts be sabotaged by those who have exploited us for so long.

Interest Rate Hike - If Not Now, When?

By not demanding the right kind of growth and simply throwing money at problems we have delayed and are adding to a much larger crisis lurking in the future. Many of those already concerned about the strength of the economy and they will find little comfort in recent remarks made by Oliver Blanchard. The well respected 67-year old former International Monetary Fund Chief Economist indicated the U.S. economy is not out of the woods and the Federal Reserve should be sparing in their interest-rate hikes to guard against a downturn. As chief economist at the IMF in the post-financial era from 2008 until 2015 Blanchard is credited for moving the IMF away from the view that fiscal austerity is always the best medicine for an economy.

Debt Has Grown Faster Than GDP

His comments reinforce those made by Fed Chairwoman, Janet Yellen noting the benefits of a “high-pressure economy.” Blanchard went on to say allowing the economy to run hot has more benefits than costs and that  he’s less optimistic about the U.S. economy, as consumers and businesses confront diminished expectations about the future. Statements made by Yellen suggest that she agrees, at least in some part, with former Treasury Secretary, Larry Summers, who said that secular stagnation, or a lack of demand, is pushing down global growth. Yellen has said a disappointing economy may force economists to think about the economy in new ways.

Before the crisis, most economists thought the amount of output of goods and services was primarily driven by supply, Yellen said. “This conclusion deserves to be reconsidered in light of the failures of the level of economic activity to return to its prerecession trend in most advanced economies.” This line of reasoning is consistent with the Fed and the actions of central banks across the world. For years they have fomented policies to increase demand oblivious to the harm they were doing to the ability of markets to self-correct. Low-interest rates have punished savers, distorted markets, and caused capital to be allocated in nonproductive ways.

Blanchard indicated a chief reason the economy is not growing faster is that over the past few years several revisions lowering potential growth have created a situation where both people and firms have arrived at a point that they say “well, why should we invest a lot, why should we consume a lot?” This translates into linking our weak recovery to the anticipation of a mediocre future. Blanchard paints the somewhat patronizing picture that ordinary people and firms have no clue about potential growth but weakness does affect their decisions and tends to hold back demand.. This means reduced investment by business and consumers buying less and saving reinforcing the cycle of slow growth. Like many politicians, Blanchard points to increasing public investment and spending on infrastructure as a way forward. Sadly this type of spending often leads to building bridges to nowhere and costly boondoggles.

Historically Low Rates Create New Problems

Several issues remain that will shape our economic future, such as, when rates will rise, how fast, and how far. I have to wonder how long the central banks across the world can continue their effort to create demand before some other event or crisis force them to chart a new path. History shows that on average there is about  a 15% probability every year a recession will occur, because of the extraordinary low interest rates coupled with expansive monetary policies, we have avoided a business cycle contraction for longer than normal and it seems we are on borrowed time, sooner or later a downturn will occur and it could be a doozy.

In the past, I have expressed concerns about the games being played with currencies and speculated how the failure of any of the four currencies that currently make up the bulk of world reserves would be very destabilizing. As long as the central banks behind these currencies move in the same direction and march in lockstep the integrity of this rather closed system may be able to remain intact. Still, worries exist as to just how much ammunition remains in the arsenals of the central banks and I find very troubling the argument that conditions remain too fragile to begin a return to historic norms. Also, questions remain as to whether the world can handle additional government debt when rates begin to rise. As the world economy matures creating an economic foundation that is balanced and sustainable over the long term is of major importance.


Footnote; The limks below are related to subjects mentioned above.
  http://brucewilds.blogspot.com/2016/08/currency-games-scream-major-risk.html
  http://brucewilds.blogspot.com/2013/03/low-interest-rates-and-their-cost.html

Why Not Stop Taxation Altogether? Just End It!

Anticipated Reaction To Ending Taxation

It occurred to me that with so many people thinking that deficit government spending helps drive the economy at some point our leaders might want to give us taxpayers a break. Why Not Stop Taxation Altogether? Just End It! Such a policy would go a long way to diminish the divide polarizing our nation. I do not know anyone who likes to pay taxes or go through hours and hours of record keeping and filling out forms in order to comply with our complex tax system.

Over the years Washington and governments in many countries have shown little in the way of financial restraint. If deficits don't matter it seems logical that spreading the wealth around by something other than policies focused on redistribution through such a complicated system has merit. Both economists and politicians have considered many over the top solutions to resolve the problem of slow economic growth in a global economy mired in debt. In the past, cutting taxes has been a favorite method to spur consumer spending and pump up growth. The suggestion of placing taxation in the dustbin of history is merely an extension of this idea.

No Taxation Means More Money For Everyone!

If indeed cutting the ties binding us to responsible budgets is the solution to our economic woes and holds the key to prosperity being timid may not have served us well. Forget all the previously considered outlandish ideas, such as a war on cash, forgiving debt through a debt jubilee, giving everyone a guaranteed income, and even injecting money into the economic system by dropping it from a helicopter. Ending taxation in many ways can be seen as having the same effect of economic stimulation.

This is only one in a series of  easy plans to jump-start the economy, the next part when I get around to writing it will be titled, "Just Print More Money." Both plans constitute a better alternative than going to war to kill off excess labor while ramping up production of self-exploding equipment or building bridges to nowhere. If history is any indication wealth and jobs flow into any country that has low tax rates so why not take it to the next level. While I could parade slew of complex figures and calculations before you proving all this will work please just show me the same kind of trust we give to those leading us from Washington.

My proposal should make everyone happy, it should please both Trump voters who claim enough is enough as well as Hillary supporters who can't get enough. So I say, eat your heart out Paul Krugman and you too Ben Bernanke, with all the time both of you have spent pondering the economy in the ivory halls of academia you have come close but it is I who have proposed the next step in our financial evolution.  Ending all taxation of any kind will not render the laws of economics moot or move us much further into the false state of modern voodoo economics than we have already traveled and it is guaranteed to work until it no longer does.


Footnote;  Your comments are welcome and encouraged. If you have time check out the archives for post that may be of interest to you. Below is another post related to this subject,
                   http://brucewilds.blogspot.com/2014/04/planning-sustainable-future-for-mankind.html

China, Real Reform Or Just Spinning Its Wheels?

China Continues Expanding Liquidity

Recently China has been on a tear to add liquidity to its flagging financial system. Liquidity should by all rights stem its economic descent, however, China's central bank is in the unenviable position of filling a leaky bucket. While they have made every effort to plug the leaks and halt the flow of money across its borders it is finding just how porous the financial dikes around modern day economies has become. We have witnessed massive monthly outflows of wealth and capital that have continued to flee China even after efforts to plug the fractures and cracks. Cross-border money flows is a strong and important force that disrupts markets and effects the ability of central banks to isolate and control problems within their borders.

Chinese Money Is Distorting Markets

Well documented is how money flowing out of China has affected housing prices in Vancouver and driven them into bubble territory. It is estimated that $700 billion to $1 trillion have fled China last year. This sum is more than the entire economy of Switzerland. China now claims the cross-border capital flows are expected to stabilize in the fourth quarter and major capital flight is unlikely because the country's economic fundamentals are strong. On Friday the nation's foreign exchange regulator claimed. Official data released on Wednesday showed overall economic growth at 6.7 percent, with some signs of strength  appearing in the industrial sectors.

More important to many China watchers than what is said or government numbers is that on Friday, the People's Bank of China (PBoC) set the central parity rate at 6.7558 hitting a six-year low. They claim depreciation of the yuan is natural in light of the recent strengthening of the U.S. dollar, noting that the dollar index, which is the trade-weighted value of the dollar against a basket of major currencies, rose by 2.99 percent since the beginning of the month. The dollar has strengthened mainly due to the rising expectation of an interest rate hike by the United States Federal Reserve by year's end.

All in all the events unfolding are directly responsible and feeding into several trends. One noticeable trend is that Chinese companies are expanding investment in overseas acquisitions, this is a way to move money out of the country while not upsetting the apple-cart. Also, China has embarked on an unprecedented spending spree, rebuilding the infrastructure both in China and across the world. Another area where money continues to flow is into housing. New home prices in 63 out of 70 cities that the National Bureau of Statistics monitors gained in September. This has raised enough concern to caused the central bank, the China Banking Regulatory Commission and other bodies to draft new rules barring developers, peer-to-peer networks, and other non-banks from offering down-payment loans to people buying houses.

By the end of September, financial institutions in China had lent 25.33 trillion yuan ($3.74 trillion) to the property sector, up 25.2 percent year on year, according to a report from the People's Bank of China. It is important to note housing prices are again on the rise in China as if they were not high enough. Indications that China’s hundreds of P2P lenders allowing home buyers to seek down-payment loans online are a sign of shadow-banking leverage creeping into China’s housing market and similar to what drove the margin financing that fueled last year’s stock market bubble. Concerns of a damaging housing crisis like the 2008 subprime mortgage crisis in the U.S. are very real.

Chinese Ghost Town built in Angola, Africa

The so-called re-balancing of the Chinese economy is multi-pronged and not free of risk. As they try to diversify away from exports toward a consumer economy and shift from domestic investment toward international investment we may see inexperience and greed take a backseat to good sense. Much of this is taking place at an astonishing speed. Not only is China building infrastructure projects for near neighbors such as a mega-pipeline project in Russia for natural gas and making plans to help refurbish Europe’s aging infrastructure. They are also doing work in nations throughout Latin America and Africa. Like the Chinese ghost town built on the outskirts of Angola's capital city, in the end, many of these may turn out to be nothing more than glorious bridges to nowhere.

The Bank for International Settlements says much of the capital outflow from China has been to pay down dollar debt and is largely benign and indicated foreign reserve depletion has subsided. Still, a debate rages on as to whether the Chinese economy really bottomed in mid-2015 and has been slowly recovering. It remains clear even with the banks already holding a lot of bad debt we are again seeing credit growing at unhealthy double-digit rates. The Communist Party may have put off the day of reckoning by pulling the levers of stimulus but when that moment comes it will be even harder to deal with as  trade tensions continue to grow.


Footnote;  As always comments are welcomed and please feel free to scan the archives for other article that may interest you. Above I mentioned an earlier post that explored the rather strange customs and how houses are sold in China, the link to that post can be found below.
http://brucewilds.blogspot.com/2017/10/china-housing-market-customs-bizarre-to.html

Trumps Reluctance To Accept Defeat

Are the political polls so far off that they do not reflect reality? With so many blatant lies in the air, what are the American people to believe? Trump's reluctance to accept what is generally called the "election results" if they come in against him has some justification and merit. We should expect no less from this Washington outsider shunned by many of those within his own party. Considering the contentiousness of this contest coupled with the media bias and a White House hell-bent on swaying the election results the idea Trump is somewhat dubious of the establishment is understandable. One thing is clear and that is Trump is a fighter and not a man who goes quietly into the night. Trump has shown the spine to stand up to Washington and galvanized the angst that has bubbled up through the electorate.

Even Springfield Occasionally Shows A Spine

America was formed by people speaking up and letting their voices be heard, this tradition should not be squelched. Many of us cite Al Gore's challenge following the 2000 election as an example of our right, no our obligation. to question the results of an election when the outcome is razor close or fraud is suspected. Not only is it our right it is our duty. When it is a case of handing over the reigns of leadership to someone in the same party that is currently in power, even more, diligence is in order, especially when evidence of collusion exist.

The facade of legitimacy surrounding Hillary Clinton is beginning to crumble as more and more leaks continue to drip out exposing her for what she is. To those supporting her who claim the source of this information is more important than what it reveals, I say not. As to claims made by Hillary during the third debate and many times before and after, that it was the work of the Russians, the National review has come out and said "No, Hillary, seventeen US intelligence agencies did not say Russia hacked Dem e-mails" pointing to the fact that just saying something does not make it true. Like in many highly contested and fiercely heated elections conspiracy theories, spoofs, false stories and scams fill the airwaves making the truth difficult to find.

Of the myths that have crashed to the ground are those that the media is fair and Washington is for and by the people. When it comes to giving tit for tat the media does not even come close in treating Trump the way it has treated Democrats. An example is how Vice President Biden's comment yesterday, “The press always ask me don’t I wish I were debating him? No, I wish we were in high school I could take him behind the gym — that’s what I wish,” were not taken as promoting or condoning violence but instead hailed as a statement of standing up for those who could not defend themselves. The media did not call this controversial nor did comments by Hillary taking about the "basket of deplorables" that support Trump have the affect that cost Romney the last election when he stated that 47% of Americans would never vote for him. 

While many people feel Donald Trump is an asshole, which is defined in the dictionary as a "stupid, incompetent, or detestable person" it must be noted many of us see his detractors as a bit bias and even if it proves to be true, he is our asshole. While Trump is flawed he has not draped himself in the guise of a public servant and fleeced the people for which he served of their trust and wealth. He does not stand before us as a symbol of corruption, he is not guilty of the same kind of lies and broken laws that would have put the average American in prison. So to those who say not pledging to accept defeat is both dangerous and further proof that Trump is unfit I say, methinks you doth protest too much.